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Jetblue Airlines: Getting over the Blues

By:   •  December 8, 2018  •  Case Study  •  3,139 Words (13 Pages)  •  61 Views

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JetBlue Airlines: Getting Over the blues

Table of Contents

Introduction……………………………………………………………………… Page 3

History…………………………………………………………………………… Page 5

Porter’s Five Forces……………………………………………………………… Page 5

Business Level Strategy……………………………………………….....  Page 5

Corporate Level Strategy………………………………………………… Page 7

Financial Analysis……………………………………………………………….. Page 7

SWOT Analysis………………………………………………………………….. Page 8

Recommendations……………………………………………………………….. Page 10

Conclusion………………………………………………………………………..Page 13

References………………………………………………………………………..Page 14

Introduction

        There are three principal sectors in which the airline industry is divided into: major airlines, regional airlines, and low-fare airlines (Dess, et al, 2019). In the United States, the Department of Transportation defines major airlines as those in the industry that have annual revenue of $1 billion or above.  Over the years, there have been approximately 18 passenger airlines that fit into the category of major airlines, with many merging companies to become one major airline.   After mergers, the newly formed airlines are in a better position to offer more-scheduled flights to smaller cities, various major cities, and internationally. The major airline therefore operate on a route system known as hub-and-spoke; this simply means the airlines operate in a limited/specified number of hub cities and serve other destinations with connecting or one-stop service through their hub (Dess, et al, 2019).

        Regional airlines utilize and operate smaller aircrafts with routes that are lower in number, without an independent route system.  Hence, regional airlines work in conjunction with major airlines in order to cater to their passengers on the spoke, between a smaller or larger city and even a major hub.  In the United States, there were six regional airlines in operation by 2010; JetBlue quickly became one of the six recognized airlines at the end of 2012.

        The operation an airline that travels from point to point within its own routing system is known as, low-fare airlines.  In the United States, the low-fare airline sector accounts for about eight airlines.  Low-fare airline operators target, business and leisure consumers who are conscious of ticket prices and are in search of alternative avenues of transportation (Dess, et al, 2019).  Ultimately, these airlines have generated a demand for budget conscious travelers, while attracting business class travelers from major airlines to their airline.

        The factors that ignite competition in the airline industry include, loyalty programs, customer service, routes served, fare-pricing, types of aircraft used, code-sharing relationships, safety records and reputation, flight schedules, and in-flight entertainment (Dess, et al, 2019). The external environment of the airline industry, in the late 90’s and early 2000’s brought about a change for many in the industry.  “The economic downturn in the late 1990s and the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, severely affected the airline industry and changed the competitive relationship among carriers” (Dess, et al, Pg. C-209).  The effects of these events have continued to impact airlines for years; for example, many of the traditional network airlines were forced to file bankruptcy, consolidate, merge, or undergo some type of financial restructuring.  Although many airlines did not plan for a financial restructuring at the time, it proved to be a strategic plan that had positive outcomes.  The implemented financial restructuring by many airlines resulted in them gaining a more competitive edge, reducing labor costs, and restructuring debt.  “This has enabled the major airlines to provide innovative offerings similar to those of low-cost airlines while still maintaining their alliances, frequent-flier programs, and expansive route networks” (Dess, et al, Pg. C-209).  Subsequently, this drastically diminished/bridged the gap between the traditional network airlines and low-cost airlines.

History

        David Neeleman founded JetBlue, originally called NewAir, in 1999.  In its formative years, JetBlue airlines mimicked the structure of Southwest airlines, since Neeleman was their former executive vice president.  The new airline company offered consumers low-cost travel fare and had the desire to provide outstanding service.  Neeleman’s objective for JetBlue was to bring a level of humanity back to air travel, therefore, the airline offered consumers services such as, satellite radio, in-flight entertainment, more leg room, and television for every seat.  In late 1999, JetBlue launched its initial operations in New York’s John F. Kennedy International Airport.  Subsequently, in February 2000, the government formally approved for the airline to offer services out Fort Lauderdale and Buffalo, New York.  As the airline continued to grow, it became one of the few airlines that made a profit after the 2011 terrorist attack.  In the midst of the airline facing competition from rivals, various successes and failures, they still prevailed.

Evaluation of Competitive Environment

        Porter’s five forces was developed by Michael Porter as an analytical tool to evaluate competitive environments. The following highlight the five basic competitive forces; threat of new entrant, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and services, and the intensity of rivalry among competitors in an industry (Dess, et al 2019).  In the airline industry, the treat of entry is significantly decreased due to certain requirements, such as, having substantial capital to enter, strict government regulations, service diversity, and security and safety threats.  Despite the industry’s low threat of entry, airlines still display competitive rivalry at a high rate.  Many, if not all airlines in all of the sectors compete for low-fare, mergers, and limited gate space at airports.  With the gaps being closed between traditional network airlines and low-cost airlines in the past two decades, there has been an increase in buying power and high supplier in all sectors. The primary aircraft suppliers that create increased supply power are Boeing, Embraer, and Airbus.  As the suppliers of aircrafts are controlled by just a few airlines, it has become more concentrated than that of the purchasing industry, rendering the bargaining power of these suppliers high.  Even though supplier power is increased, there is also a matching increase with buying power.  Since competitive advantage drives suppliers in the industry, one can state that the aircraft industry is lacking in differentiation.  Hence, this permits suppliers to have price wars among themselves, while not enforcing switching costs.  Finally, the threat of substitutes presents itself due to the fact that people employee various avenues to travel (car, train, bus, or boats). It is important that JetBlue utilize data from studies of why people use other means of transportation to travel to gain competitive advantage.

Evaluation of Competitive Business-level Strategies

        Dess states, “the opposing pressures that managers face place conflicting demands on firms as they strive to be competitive (Dess, et al Pg. 217).  Therefore, the need to be competitive drive organizations to decrease unit prices in order to appeal to customers. Furthermore, in order to cater to specific localities being served by an organization, they must continually modify their products to fit the local markets.  Thus, to compete locally, industries must strategically distinguish their products in each locality or country they are present in to maintain competitive advantage.  The strategy to differentiate has to create a unique distinction in the services or products being offered by the organization in order to create value in the eyes of the customer.  There are several methods of differentiation that can be used, such as customer service, technology, dealer network, features, brand image, and innovation.  JetBlue Airline stands out in the industry because it has utilized technology to increase performance for its pilots, the features on the aircrafts offer customer luxury/comfort, and the excellent customer service to all passengers is incomparable.

        Evaluation of Competitive Corporate-level Strategies

Corporate governance is known as the connection between many participants when defining the performance and direction of corporations (Dess, et al, 2019) Therefore, having secure and strong corporate governance is an excellent method of gaining competitive advantage.   Those who actively participate in corporate governance are known as management, shareholders, and the board of directors. One of the most important aspects of maintaining corporate governance is via strategic management, one that empowers organizations to create and maintain their competitive advantage over others.  There are four main features of strategic management organizations must recognize and implement, they are; the need to incorporate long-term and short-term perspectives, direct the corporation toward achieving the overall set goals and objective, recognizing trade-offs between effectiveness and efficiency, and include various stakeholders in the decision making process (Dess, et al, 2019).

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